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The market for life care annuities: using housing wealth to manage longevity and long-term care risk

Author

Listed:
  • de Bresser, J.;
  • Knoef, M.;
  • van Ooijen, R.;

Abstract

There is rising interest in combined insurance products to finance long-term care (LTC) and retirement income. We analyze the market for life care annuities, which combine life annuities and LTC insurance, and examine how reverse mortgages can extend accessibility. These combined retirement finance products offer several benefits, such as reducing adverse selection, enabling consumption smoothing, and enhancing financial well-being at advantaged ages while keeping housing as a savings commitment. Using a discrete choice experiment conducted in a large representative panel in the Netherlands among individuals aged 40 to 66 reveals that 40% would opt for LTC-only annuities – which pay out between 500 and 1250 euros per month when having LTC needs – at market prices regardless of whether the payment mode is a monthly premium or a reverse mortgage. Reverse mortgages as a payment mode increase the demand for more expensive life care annuities by 8%-points. Further, the results show that a well-designed small menu of life care annuities could serve most individuals, with accessibility significantly extended when using reverse mortgages as a funding source.

Suggested Citation

  • de Bresser, J.; & Knoef, M.; & van Ooijen, R.;, 2024. "The market for life care annuities: using housing wealth to manage longevity and long-term care risk," Health, Econometrics and Data Group (HEDG) Working Papers 24/11, HEDG, c/o Department of Economics, University of York.
    • Handle: RePEc:yor:hectdg:24/11
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    More about this item

    Keywords

    long-term care; life care annuities; reverse mortgages; discrete choice experiment; saving motives; health expectations;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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